Highlights

Simons Trading Research

Author: simonsg   |   Latest post: Wed, 17 Aug 2022, 10:12 AM

 

Uni-Asia Group - 2H21 Turnaround Accomplished, Further Gains Expected in 2022

Author:   |    Publish date:


  • Uni-Asia delivered results that came in slightly above our estimates. Its balance sheet health is improving, supported by cash flow that has risen to record-high levels.
  • We see a gap between investor sentiment and the reality stemming from the Russia-Ukraine conflict. Beyond that, freight rates are expected to stay elevated at least until end-22 given the favourable demand-supply imbalance.

Uni-Asia Group's 2H21 Results Beat on Elevated Shipping Charter Rates

  • Uni-Asia Group (SGX:CHJ) reported 2H21 net profit of US$11.0m (2H20: US$3.6m loss). This brought full-year net profit to US$18.0m, reversing from the US$7.5m loss in 2020 and slightly above our estimate of US$17.1m.
  • For 2H21, total income jumped 54.9% y-o-y to US$37.8m, mainly led by higher charter income of US$27.8m (+67% y-o-y) due to improved day rates as a result of better demand-supply dynamics.
  • Management proposed a dividend of S$0.05, consisting of 3 cents final and a surprise special dividend of S$0.02, bringing 2021 total dividend to S$0.07 (vs 2020: S$0.01), which represents a payout ratio of 22%.
  • Utilising healthy cash flow to pare down debt. In 2021, Uni-Asia's operating cash flow (OCF) spiked to US$28.4m (2020: US$6.8m, 1H21: US$8.1m). This was mainly used to pare down loans from US$114m to US$83.8m, with net gearing being reduced from 66% in 2020 to 36% in 2021. We are of the view that the healthier balance sheet now enables Uni-Asia to lift its payout ratio to 25% in 2022 and beyond, implying a 9.6% yield for 2022.

Charter Income Expected to Continue Northward

  • Shipping industry consultant Marsoft expects seaborne trade demand to bounce back in 2Q22 and for the rest of 2022, boosted by a seasonal spike in grain trade and rebound in steel-related trade, as China limited domestic steel production to reduce pollution ahead of the Winter Olympics.

Potential Opportunity Stemming From Russia-Ukraine Conflict

  • We see a potential gap and trigger price competition.

BHSI Index Suggests Supply Is Short-squeezed

  • As at 18 Mar 22, Baltic Handysize Index (BHSI) spiked 17.1% since military operations started on 24 Feb, and 10.5% year-to-date. Our channel checks suggest two fundamentally-changing factors:
    • the increase in oil prices have led charterers to slow-steam, and
    • alternative sourcing for soft commodities
  • have resulted in increased demand for longer-ranging routes, both of which have caused a short squeeze on supply amid the already-imbalanced demand-supply equilibrium due to unfavourable charter rates over the past few years.

Renewal of Vessels’ Rates to Boost Earnings

  • Notably, 4 of the 10 wholly-owned drybulk carriers are due for renewal in 1Q22. Current handysize freight rates are above US$24,000/day, which have led us to increase our charter rate assumptions on Uni-Asia’s expiring charter agreements to US$24,000/day from our initial 1Q22 estimate of US$18,000/day.
  • We are of the view that charter rates will stay elevated in 2022 due to the favourable structural dynamics.

Uni-Asia Group - Earnings Forecast Revision & Recommendation

  • We have lifted 2022 and 2023 revenue forecasts for Uni-Asia by 18% and S$1.14, Uni-Asia trades at 2.8x 2022F P/E and offers an estimated dividend yield of 9.1%.
  • Share price catalysts:
    • Higher-than-expected freight rates in the handysize segment.
    • Better-than-expected cost management.

Source: UOB Kay Hian Research - 21 Mar 2022

Share this
Labels: Uni-Asia Grp

Related Stocks

Chart Stock Name Last Change Volume 
Uni-Asia Grp 1.11 0.00 (0.00%) 67,700 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
 
 

185  181  222  610 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 Sembcorp Marine 0.11+0.001 
 Parkson Retail 0.081+0.011 
 Hatten Land 0.034+0.003 
 Acesian Partners 0.058+0.001 
 HSI 21000MBeC.. 0.053-0.01 
 YZJ Fin Hldg 0.36-0.005 
 HSI 19200MBeP.. 0.105+0.01 
 HSI 21800MBeC.. 0.031-0.006 
 HSI 18400MBeP.. 0.073+0.006 
 CMC Infocomm 0.135+0.008 
PARTNERS & BROKERS